Keating Lawyer Says U.S. Fraud Suit Is ‘Joke’

The government’s $1.1-billion fraud and racketeering suit against Charles Keating Jr. and other former operators of Lincoln Savings & Loan “is a joke” and should be dismissed, a defense lawyer says.

Lawyers for Keating and nine other individuals named as defendants filed a motion Thursday asking U.S. District Judge Richard Bilby to dismiss the civil suit filed Sept. 15 by the Resolution Trust Corp., the government agency acting as receiver for Irvine-based Lincoln.

Regulators seized the S&L; last April 14, one day after its parent company, Phoenix-based American Continental Corp., filed for Bankruptcy Court protection from creditors. The parent firm also filed bankruptcy petitions for 11 Lincoln subsidiaries, which held two-thirds of the S&L;’s $5.3 billion in assets at the time.

On Friday, Bilby exercised a rarely used power and removed all bankruptcy proceedings from the U.S. Bankruptcy Court. The judge, who already was hearing certain bankruptcy issues, decided that having parts of the cases in two different courts was unworkable, especially since lawyers were appealing Bankruptcy Court decisions to his court.

The action means that all federal litigation involving Lincoln in Arizona is now before him.

The government’s racketeering suit alleges that Keating and other American Continental officers, including four Keating relatives, conspired in a scheme that defrauded Lincoln of more than $1.1 billion in federally insured deposits. The suit includes accusations of fraudulent loan, land and stock transactions.

Covering Lincoln’s losses is estimated to cost U.S. taxpayers more than $2 billion, which would make it the costliest S&L; failure ever.

“That lawsuit’s a joke, and it should be treated like one,” said James Ham, a Los Angeles lawyer who represents Keating and the four Keating relatives.

Ham said the lawsuit is “legally defective” and contended that the government lacks the facts to support its claims.

“A good deal of the ‘facts’ contained in the complaint are either badly mistaken or simply made up,” Ham said.

Even if all the allegations were true, he said, the government’s racketeering case against Keating still would not hold up. He contended that the government has insufficient evidence and that the racketeering statutes are unconstitutional.

If Bilby does not dismiss the suit, the defendants would have to answer the allegations of the government’s 161-page complaint.

“Ultimately, if there has to be an answer, there’s just going to be a denial of each and every allegation,” Ham said.

John Owen, an attorney representing the Resolution Trust Corp., the federal agency that brought the suit on behalf of Lincoln, said the dismissal request was not a surprise.

“They promised to do that for a long time,” Owen said. “I’m not going to comment at all about it until I read what they have to say.”

Thursday was the deadline for the defendants to respond to the suit.